BRIDGING THE RAIL

FINANCE GAP
CHALLENGES AND OPPORTUNITIES
FOR LOW- AND LOWER MIDDLE-INCOME
COUNTRIES
White paper
 Foreword
In the collaborative spirit that brings about transformation, the International Union of Railways
(UIC) and ALSTOM are proud to work together with the University of Birmingham and Roland
Berger, on this important new report in the lead up to COP28. As we navigate the complex
challenges of the 21st century, it is our shared conviction that unlocking investment in rail
infrastructure in low-and lower middle-income countries (LICs and LMICs) is vital to avoiding
strong transport emission growth, while bringing connectivity and economic benefits that will
allow economies to flourish.
We call upon governments, international financial institutions, and the global community to
recognize this opportunity and deliver the transformations needed to ensure funding and financing
of rail in LICs and LMICs is greatly expanded, including through access to climate finance.
This study lays out the challenges faced by the rail sector in these countries and provides
recommendations for collective efforts that will take advantage of a short window of opportunity
to set countries on a sustainable development path, before further carbon is embedded into their
transport systems. Let us work together to accelerate investment in rail and embark on a journey
towards a greener, more resilient world.

Francois Davenne, Director General of UIC

Natalie Bouvier, Chief Strategy Officer, ALSTOM

“
The lead up to COP28 highlights the need for even stronger action to tackle the current climate
emergency, where the transport sector continues to be one of the main emitters of greenhouse gases.
The potential for rail infrastructure in LICs and LMICs is considerable, which can lead to equally
considerable savings in carbon emissions. We were delighted to work with Alstom and UIC to produce
this important contribution to the debate, which shows that major changes are needed to enable rail to
fulfil its potential role in reducing CO2 emissions. We are enormously grateful for contributions from our
partners and from experts across the world and look forward to the debate and to seeing much needed

”
change. The Birmingham Centre for Railway Research and Education (BCRRE) is Europe’s largest
academic-based group that provides world-class research, education, and innovation to the global rail
industry. Similarly, Roland Berger is looking to use its implementing power to unlock climate action and
help ensure future-proof business models.

Professor Paul Plummer, University of Birmingham

Didier Brechemier, Roland Berger

Acknowledgements
This paper is a result of collaborative efforts by Dr Marcelo Blumenfeld and Professor Paul
Plummer (University of Birmingham), Didier Brechemier (Roland Berger), Warwick Townsend
and Paul Bou Chebl (Alstom), Lucie Anderton and Joo Hyun Ha (UIC). Special thanks to Martha
Lawrence and Matthias Plavec (World Bank) for the continuous support and advice.
Acknowledgments to William Mackie for data collection and analysis; and for the expert advice
of Howard Rosen (Rail Working Group), Dr Reinaldo Fioravanti (IDB), Andres Pizarro and Pilar
Lopez Camacho (AIIB), Sandeep Jain (UNESCAP), Lubinda Sakanga (SARA), Vibek Gupta (IBN),
Adam Bruun (EIB), Karim Mhirsi and Elisabeth Richard (Alstom), Fadil Ayoub (ONCF), Christian
Chavanel and Chakib Metennani (UIC), and Idrissa Sibailly (World Bank).

2
Executive Summary
Increasing the amount of rail infrastructure with a strong focus on low-income countries (LICs)
and lower middle-income countries (LMICs) can help avoid substantial carbon emissions through
decoupling economic development from transport emissions growth, which will also benefit the
entire global community.
LICs and LMICs are home to more than half of the world’s population, yet they only account for 17% of
transport-related emissions. Investing in railways, which are more energy efficient and less carbon intensive
than other transport modes, can help LICs and LMICs achieve climate goals. Additionally, other economic
benefits from rail projects, such as growth in trade and formal jobs, increased accessibility and connectivity,
densification of urban spatial growth and much lower negative external costs in comparison to other modes
support the promotion of sustainable development goals.
LICs and LMICs have substantially less rail
infrastructure than High Income Countries (HICs)
with an average network density of 4.95 km of rail
infrastructure per 1,000 km of surface area, versus an
average of 50 km for HICs. Analysis undertaken for
this study shows that if LICs and LMICs were able to
expand their rail infrastructure to the level of the best-
in-class countries among them (95th percentile), they
could quadruple rail modal share to 8% and avoid
a total of 1.8 Gt of carbon emissions by 2050. This would see the additionof 180,000 km of new interurban
lines and 12,000 km of new urban lines. Closing this rail infrastructure gap would require annual investment
in rail in LICs and LMICs of USD 80 billion per year through 2050. Annual investment of USD 25 billion would
still allow the addition of 50,000 km of interurban lines and 4,000 km of urban lines and the avoidance of 1
Gt of emissions by 2050. Expanding rail investment to these levels would require a substantial build-up of
technical, legal and financial capacity in LICs and LMICs.
The main challenge to expanding rail infrastructure in LICs and LMICs is securing adequate financing and
attracting foreign investors. These countries generally have limited tax revenues, which limits their ability to
self-fund the upfront infrastructure investment costs of rail projects. Additionally, countries may already have
high debt levels, limiting access to commercial borrowing, with rail projects difficult to be fully covered by
private finance in any case. International Financial Institutions (IFIs) are important sources of development
funding for LICs and LMICs yet they have historically directed far more funding to road projects than rail,
partly because standard models of cost-benefit analysis used to assess projects do not account for benefits
that may last for the entire life of rail infrastructure of 100 years. Some bilateral government funding for rail
does also come through Export Credit Agencies (ECAs) who play a crucial and decisive role in supporting
exporters in LICs and LMICs, making their projects bankable and allowing access to the private banking
market under competitive terms. Currently available climate financing schemes based on carbon crediting
can be a source of funds, however the amounts on offer from those based on carbon crediting have not
been material for rail projects.. A further difficulty in funding rail is that many economic benefits of rail projects
accrue to broader society and are difficult to capture to the project developer as a financial return.

Closing the financing gap for rail investment in LICs and LMICs is an issue of global significance, that, if
resolved will deliver global public goods. It therefore justifies interconnected action from governments,
IFIs, the international community and the finance sector to support these countries in realising the
potential for avoiding substantial carbon emissions and delivering broad economic benefits.

1. High income countries should provide grants to fund rail projects in LICs and LMICs
Recognising the importance of decoupling transport emissions growth from economic growth in
LICs and LMICs through increased rail investment, and the global public goods that will result,
high income countries should provide substantial funding for rail through grants - or loans with
a significant grant element. Even partial grant funding of rail projects would greatly increase
their financial viability, and help leverage accompanying concessional financing by funding the interest and
deferral of loan payback, ensuring that far more can be completed. Grants should come as part of the annual
$100bn of climate finance that developed countries committed to provide to developing countries, including
LICs and LMICs, at COP15 in 2009, as well as, when applicable, as part of the Loss and Damage funds
approved at COP27 in 2022.
3
 2. Governments should allow rail projects in LICs and LMICs to be funded under
Article 6 of the Paris Agreement and support the development of carbon finance
market regulations for rail
Due to the large scale emissions that would be avoided from new rail projects in LICs
and LMICs, governments should consider rail as climate mitigation projects under Article 6 of the Paris
Agreement, generating carbon credits that would in turn be allowed to be sold to richer countries.
Governments should also support the development of carbon finance market regulations specifically for
land transport, that would standardize the calculations of avoided emissions from a modal shift to rail,
which would expand climate funding sources for rail.

3. IFIs should adapt their methods of cost-benefit analysis of rail projects and
greatly increase the funding they direct to rail
With long lifetimes of 30-35 years for rolling stock and up to 100 years for infrastructure,
rail projects are discriminated against with standard methods of cost-benefit analysis used by IFIs.
Such approaches must be updated, allowing rail projects to use lower depreciation rates so that their
substantial future benefits can be better captured by financial models. Additionally, the wider socio-
economic benefits of rail, though difficult to monetise, must be incorporated in appraisal processes.
IFIs should also prioritise low carbon, efficient and resilient modes in future expansion of their lending
pools, increasing funds allocated to rail projects, as well as support LICs and LMICs in making their
railways more creditworthy.

4. LICs and LMICs should lead implementation of policies to spur private

investment in rail, and modal shift
Governments in LICs and LMICs can increase the attractiveness of private investment
in rail projects by providing stronger rights over rolling stock to creditors. Similarly, aligning to
standardise rail technical standards across countries will increase investor confidence and can also
allow multi-country rail corridors to be developed. Governments should also accompany rail projects
with policies that incentivise modal shift, with both push and pull measures, to ensure the full utilisation
of infrastructure and the success of projects and delivery of the climate and economic benefits they
promise. This will also be aided by closely integrating rail with other transport modes, by taking action
to improve first and last mile connectivity for people and goods
in conjunction with rail projects.

5. The international finance sector should work to make financing rail projects
more attractive to the public and private sectors and to build capacity in LICs and
LMICs
Important forms of public and private sector finance for rail projects in LICs and LMICs should be
expanded. The international finance sector should work to support the development of capacity in LICs
and LMICs for the delivery of rail projects as Public Private Partnerships. Countries should also be
supported by the sector to help build institutional and technical capability through strengthening fiscal
and regulatory frameworks.

6. LICs and LMICs should collaborate with the rail industry to structure rail
projects to maximise broader economic benefits
Private companies can bring significant operational and technical expertise to rail
projects in LICs and LMICs where there may be a lack of local capacity; they can also help develop the
industrial capacity of countries through facilitating participation in supply chains during construction and
operations phases LICs and LMICs should work with the rail industry to structure projects in this way,
which will broaden economic benefits, increase countries’ economic complexity and create high value
formal jobs.

7. The rail industry should continue to leverage digitalisation and advances in rail
technologies to improve the attractiveness of rail
De-risking cost-effective technologies can help reduce required project investments and improve
project bankability. The railway sector should continue to progress in developing new solutions that
lower operation and maintenance costs, which are particular challenges of the mode. Newe forms of
traction, or digital train-based control systems, can also reduce the need for line-side infrastructure and
with that lower overall infrastructure costs and make projects more attractive for financing.

4
List Of Abbreviations

ADB AfDB CDM

Asian Development Bank African Development Clean Development
Bank Mechanism

CER ECA GCF

Certified Emission Reduction Export Credit Agency Green Climate Fund

HIC LIC LMIC

High-Income Country Low-Income Country Lower Middle-Income
Country

IADB NDC OECD

Inter-American Development Nationally Determined Organisation for Economic
Bank Contributions Co-operation and Development

TOD UMIC UNFCCC

Transit Oriented Upper Middle-Income United Nations Framework
Development Country Convention on Climate Change

What are LICs and LMICs?

Low-income countries (LICs) and lower middle-income countries (LMICs), are definitions used since
1983 by the World Bank to classify countries based on their Gross National Income (GNI) per capita,
using its Atlas Method.
Low-income countries (LICs) are those with a GNI per capita of USD1,135 or less in 2022, and
lower middle-income countries (LMICs) are those with a GNI per capita between USD1,136 and
USD4,465.
Other countries are labelled either upper middle-income countries (UMICs), with a GNI per capita
between USD4,466 and USD13,845; or high-income countries (HICs) where the GNI per capita is
USD13,486 and above.

5
1
WHY DO
RAILWAYS IN
LOW-INCOME
AND LOWER
MIDDLE-INCOME
COUNTRIES
MATTER?

6
Railways as contributors to sustainable development
The transport sector continues to be one of the biggest contributors to global emissions,
despiteworldwide commitment to reduce emissions in all sectors following the Paris Agreement
signed in 2015. Transport emissions mostly arise from the world’s heavy dependence on fossil-fuel
transport modes. Road transport emits 75% of total transport carbon emissions and uses more than
40% of global oil consumption [1, 2]. Pathways to avoid irreversible environmental damage must
include a drastic shift to low carbon modes to move people and goods.
Railways are known for their relatively low emissions, yet more needs to be done to consolidate its
inclusion within the plans for climate action outlined in Nationally Determined Contributions (NDCs)
in response to the Paris Agreement. In a recent analysis by the International Union of Railways
(UIC), findings show that only 54 out of 195 parties mention rail in their NDCs, with 32 countries
being LICs and LMICs. Furthermore, only 19 parties have specific targets stated in their NDCs,
among which 12 are LICs and LMICs1. This shows that despite limited financial capacity, these
countries have a clear ambition for rail potential in climate action and are clearly seeking support
from the international community to deliver on that potential.
Direct impact - In a pressing time for climate action, a low-carbon mode of transport like rail is losing
market share. While railways carry 8% of the world’s passengers and 7% of global freight transport,
they only consume 1% of the total energy demand [3].
Compared to other modes, rail has one of the smallest carbon footprints, with an average emission
of 22g of CO2 per passenger-km. In comparison, buses emit an average of 63g of CO2 per
passenger-km, commercial aeroplanes emit an average of 123g per passenger-km, and medium
cars emit an average of 148g per passenger-km [4].

0 50 100 150 200 250

gCO2 emissions per tonne-km

Range Average

Figure 1. Average emissions per passenger-km for different transport modes

Indirect impact - Rail also has fewer negative externalities than road transport. Studies estimate that
external costs from road modes can be 9 times larger than those of electric trains (and 6 times larger
than diesel trains) when converted to monetary values (EUR-cents/passenger-km or EUR-cents/
tonne-km)2 .

1
LICs and LMICs that have specific targets for rail in NDCs: Burkina Faso, Chad, Democratic Republic of Congo, Eritrea, Ethiopia,
Malawi, Myanmar, Sierra Leone, South Sudan, Sudan, Tajikistan, Uganda – UNFCCC registry
2
Calculations based on a study conducted by the European Commission that compares the external costs of private cars against
conventional passenger trains (electric or diesel), and HGVs against freight trains (electric or diesel). External costs calculated include
accidents, air pollution, climate change, noise, congestion, emissions, habitat damage, and social marginal congestion costs (trunk
roads at near capacity) [52]

7
Investment in railways also bring broader socioeconomic benefits in the form of formal jobs and
economic development [5]. In intercity corridors, railways have been found to promote greater
economic activity and social opportunities, especially for women and other marginalized groups.
Rail projects can also be structured such that they build industrial capacity to improve the economic
output and complexity of countries, through transfer of technologies to allow local participation in
supply chains.
When planned appropriately, railways can serve as the backbone of Transit Oriented Development
(TOD), promoting strong economic development from rising real incomes and land value appreciation
within proximity of transit stations or corridors [6]. Rail systems also use less land to transport the
same amount of goods or people than road, an important benefit particularly in densely populated
countries like in Asia, and also positive for the impacts on biodiversity from expanding transport
systems.
Although rail has widely known and accepted positive externalities, these are not well quantified and
understood in monetary value.

Railways continued path towards Net Zero

Even with lower emissions than other land transport modes, the railway sector continues to make
considerable technological advancements towards full decarbonisation. Electrified systems can be
powered by renewable energy sources, and replacing higher-emission diesel systems offers a range
of alternatives, including alternative zero-emission traction systems for non-electrified rail networks.
After deployment on commercially operated lines in Germany, Alstom’s hydrogen trains will also be
deployed in Italy, and are being tested across continents, in Canada and Saudi Arabia [9, 10, 11].
Trains with batteries to allow operation on sections of unelectrified lines will also be deployed in
multiple countries in coming years.

Decoupling development from emissions in LICs and

LMICs with rail infrastructure
LICs and LMICs have much smaller historical contribution to greenhouse gas emissions (GHG),
but are much more vulnerable to the adverse impacts of climate change [10]. These countries are
home to half of the world’s population, but responsible for only 17% of global transport CO2
emissions [11]. The contribution to transport emissions from LICs is remarkably small: less than
1% of total emissions [11]. In contrast, a sixth of the world’s population lives in high-income
countries but are responsible for more than half of the global emissions from transport
activities.
In absolute values, transport emissions per capita in high-income countries are an order of
magnitude larger than those in LICs and LMICs. High-income per capita emissions are approximately
3 tonnes of CO2 each year, in comparison to 0.3 tonnes in LMICs and 0.1 tonnes in LICs [11]. Overall
transport emissions per capita are not only smaller in LICs and LMICs compared to other country
groups, but they also represent a smaller proportion of total emissions. In HICs, transport emissions
represent approximately 25% of total CO2 emissions, whereas they represent 10% of total emissions
in LMICs and only 5% in LICs.
The inequality is also reflected in access to public transport. UN Habitat estimates that about 52% of
the world’s population have access to public transport but this comes with wide regional variations;
in Sub-Saharan Africa the figure is 31% compared to 90% in North America and Europe - indicating
relative mobility poverty that is limiting opportunities for jobs, business and other social needs for
mobility [12].

8
 CO2 EMISSIONS PER CAPITA (in tonnes, 2019 values)

3.0

0.9
1.1
9.1
0.3 7.5
0.1 5.5
1.75 2.9

High-income countries Low-income countries Lower middle-income Upper middle-income World

countries countries

Other sectors Transport

Figure 2. CO2 emissions per capita per lending group for transport and other sectors [12]

LICs and LMICs as critical part of climate solution

Studies have found that a 1% increase in economic development has been linked to a 0.4% growth in CO2
emissions, due to a focus on modes that are intensive in both resource consumption and land use [13].
Investments in low-carbon transport infrastructure can reduce that proportion and contribute to a more
sustainable development in the long run. This is particularly important as transport demand in LICs and
LMICs is expected to grow significantly. For example, it is estimated that by 2050 passenger and freight
demand will triple in Sub-Saharan Africa and that in South and Southwest Asia passenger demand will
almost double and freight demand will grow by a factor of 4.9 [14].
LICs and LMICs are less capable of dedicating sufficient public funded investment to climate mitigation and
adaptation, and therefore face the greatest challenges in terms of both development and climate. These
countries require accelerated economic development to meet the UN’s Sustainable Development Goals.
Decoupling growth from carbon emissions in LICs and LMICs is therefore a matter of global
significance. If the transport sector in these countries emitted the same amount of
CO2 per capita as high-income ones, global transport emissions would more than
double. This would mean an additional 8.5 billion tonnes of CO2 being emitted annually, increasing
overall global emissions by 16% [11].
If this amount was monetised under most recent estimates of Social Costs of Carbon (at USD185/
tonne CO2) [15], avoiding those emissions in LICs and LMICs carries the monetary equivalent value of
over USD 1.5 trillion each year. It is therefore imperative to support economic growth in LICs and LMICs
that is sustainable, and that does not entail growth of transport emissions. Substantial investment in
rail infrastructure can fulfil this goal through its simultaneous contribution to economic development and
reduction in carbon emissions per unit of traffic.
However, rail investment in LICs and LMICs lags HICs and both LICs and LMICs are currently constrained
in their ability to either directly invest, or to secure the external investment required to achieve this goal.
These countries therefore face an important challenge: on the one hand, they hold a substantial
sustainable capital in avoided carbon emissions with appropriate decoupling investments. On the
other hand, they are unable to fund the investment in rail required to capitalise on this opportunity.

The transformational power of rail infrastructure in LICs and

9
The transformational power of rail infrastructure in LICs
and LMICs
The Dakar Regional Express Train (TER) opened at the end of 2021, linking Senegal’s capital to
Diamniadio. The 36km long commuter link has 13 stations and now carries an average of 50,000
passengers per day, operating with 15 Alstom Coradia trainsets at maximum speeds of up to
150km/h, using cutting edge European Rail Traffic Management System for signalling. The line
is double track, uses UIC standard gauge and is electrified. The second phase, currently under
construction, will extend the line a further 19km to Blaise Diagne international airport. The project
also envisages an increase in its daily capacity.
The Dakar TER project was financed by loans from Development Finance Institutions, namely
the African Development Bank (AfDB), the Islamic Development Bank (IsDB), and the French
Development Agency (AFD) as well as public funds from the Senegal government. It also benefited
from a direct loan from French Treasury, and a national budget contribution. This is a perfect
example of a successful combination of export and development finance tools.
The project is a cornerstone of the Plan Emergence Senegal. It allows Dakar to address growing
urban congestion that causes estimated economic losses of USD200 million per year [16]. It has
already carried 36 million passengers between January 2022 and October 2023 with a punctuality
of 98%. Coupled with the creation of an Integrated Special Economic Area, it will spur sustainable
economic growth, and create 75,000 jobs, not to mention the wider social equity impacts: more
women recruited, affordable tickets, and ticket availability at all stations. Finally, it is estimated that
the project will save around 340 thousand tonnes of CO2 over a 40-year lifespan [17].

10
2
HOW CAN RAIL
INFRASTRUCTURE
SUPPORT A
GREENER FUTURE
WITH THRIVING
ECONOMIC
GROWTH?

11
The potential for railway infrastructure in LICs and LMICs
There is generally a strong requirement for the expansion of railway infrastructure networks in LICs
and LMICs to levels that can allow appropriate modal shifts and support local and regional economic
development. Denser rail networks broaden connectivity and offer greater utilisation potential to
lower the overall costs of transport on tracks. Most LICs and LMICs have very little rail infrastructure
available and what is existing may not meet safety standards for operations. Even including outlying
countries with dense networks (Bangladesh, India, Moldova, and Ukraine), the average railway
network density across LICs and LMICs is 4.95 km of rail infrastructure per 1,000 km2 of surface
area3. By contrast, many high-income countries have networks that may be orders of magnitude
denser, such as the USA (15.1), France (41.8), Japan (72.5), and Germany (93.6).

100 93.59 7
Network dencity (route-km/1,000km2)

90

Quality of rail infrastructure index

6
80 72.26
70 65.20 5
60 4
50 41.85
40 3

30 2
20 15.12
11.68 1
10 4.95
0 0
LICs and LMICs China France Germany Japan United Kingdom United States
Network density Quality of rail infrastructure

Figure 3. Average rail network density and infrastructure quality of LICs and LMICs compared to world-leading countries

In terms of quality of rail infrastructure, LICs and LMICs also lag behind the global average. Of
all 82 LICs and LMICs, only 34 are included in the World Economic Forum Index for quality of rail
infrastructure. Their average rail infrastructure quality is 3.0 out of 7.0, which is below the global
average of 3.6 [18]. If these countries expanded and improved their railway networks, rail transport
could play a greater part in the local and regional transport and contribute to decouple their
economic development from emissions.

How much rail infrastructure could LICs and LMICs have?

To estimate the potential increase in rail infrastructure in LICs and LMICs, the relationships between
the need in railway infrastructure and key economic, geographic, and political indicators in each
country has been analysed4. Due to the different metrics, interurban and urban railways were
calculated separately. Two scenarios were developed to estimate the potential growth in both urban
and interurban railway networks (details can be found in the Methodology section). Scenarios take
into consideration the different contexts of LICs and LMICs, avoiding comparisons to the maturity
of infrastructure seen in high-income countries that may lead to unrealistic estimates. The analyses
conducted here adopt the premise of levelling LICs and LMICs to the best cases among the group.
• A base case assuming that countries expand their railway infrastructure to the average levels of
the 75th percentile among LICs and LMICs.
• A best case where the growth follows the average performance of the “best in class” (95th
percentile)
Results show that there is a significant potential to expand railway infrastructure in LICs and LMICs
that would support sustainable development. This potential for new railway lines amount to between
approximately 50,000km (base case scenario) and 180,000km (best case scenario) of new
interurban lines between now and 2050. Africa currently holds the greatest potential for growth,
which in the best-case scenario could see 135,000km of railway lines added to its current network.

3
Information collated from national statistics, the CIA Factbook, and the International Union of Railways (UIC) database.
4
The analyses presented in the report are the result of a high-level estimation of the general need for rail infrastructure. Specific
investments should be undertaken only when economic analysis demonstrates positive economic returns on the investments.

12
 Potential growth in interurban railways (‘000 km)
200
180
160
140
120
135
100
80
60
40
43 34
20
2 9 8 5
0
Base case scenario Best case scenario
Europe Americas Asia & Oceania Africa

Figure 4. Potential growth in interurban railways in LICs and LMICs (in ‘000 km)

Cities in LICs and LMICs also demonstrate significant potential for railway infrastructure. The number
and size of urban areas in developing countries continues to grow rapidly. Almost 50 cities that will
have more than 5 million inhabitants by 2035 are located in LICs and LMICs [19]. This level of urban
agglomeration creates ideal environments of economic density where improving railway infrastructure
can provide substantial benefits.
The potential growth or urban railways between now and 2050 ranges between 4,000km (base-case
scenario) and 12,000km (best-case scenario). The greatest development potential observed is in
Asian and African cities, which aligns with observed global demographic trends.
Potential growth in interurban railways (‘000 km)
14

12

10
6
8

4
2 6
2
2
0
Base case scenario Best case scenario
Asia & Oceania Africa

Figure 5. Potential growth in urban railways in LICs and LMICs (in ‘000 km)

The impact on global carbon emissions

A large increase in rail infrastructure in LICs and LMICs, as per these scenarios, would result in
the avoidance of substantial carbon emissions. For both scenarios (base-case and best-case) an
estimate of the potential carbon savings has been made, in comparison with a business-as-usual
forecast. To calculate these potential savings, the potential growth in railway infrastructure was used
to estimate respective increases in the modal share of passenger rail. Underlying assumptions can
be found in the Methodology section.
The business-as-usual scenario assumed a constant rail modal share of 2% between now and
2050, whereas the base case scenario produced an estimated modal shift of 5% and the best-case
scenario a modal shift of 8%. Using these values, carbon savings were calculated as the difference
between scenarios using estimated CO2 emissions per mode from global energy mix.

13
 3

1.8 Gt
Cumulative emissions
savings (Gt CO2)

1
1.0 Gt

Base case Best case

scenario scenario
Rail modal
share by 2050 5% 8%

Figure 6. Potential cumulative savings for scenarios analysed

It stands therefore that, if a sustainable growth in rail infrastructure were achieved in LICs and
LMICs with an adequate uptake in occupancy, the total cumulative savings from the expanded use
of rail could reach between 1,000 and 1,800 million tonnes of CO2 by 2050. These represent yearly
savings of between 37 and 67 million tonnes of CO2 emissions. These calculations did not take the
emissions associated with construction of transport infrastructure. Whilst rail infrastructure is notably
resource intensive, recent studies have found that road and railway infrastructure have a similar
carbon footprint when considering the traffic volumes and overall lifecycle5. This also builds on the
logical assumption that if rail infrastructure were not implemented, it would be necessary to build
roads of similar capacity to fulfil the economic flows of the corridor.

5
Based on the studies by Lokesh et al. [50, 51]. Their models estimate the whole life carbon of 1 km of rail track, with a service life of
60 years, is 2,024.3 tCO2eq for ballasted track and 1,662.2 tCO2eq for ballastless track. In comparison, the whole life carbon of 1 km
of road, with a service life of 40 years, is 2,658.9 tCO2eq for dual-3 lane and 2,014.1 tCO2eq for dual-2 lane.

14
3
THE FINANCE
GAP FOR RAIL
PROJECTS IN
LOW AND LOWER
MIDDLE-INCOME
COUNTRIES

15
Fulfilling the rail infrastructure potential of LICs and
LMICs
With an intensifying climate emergency, there needs to be a substantial increase in investments
in sustainable transport infrastructure that can lead to both mitigation and adaptation to climate
change. Within the rail sector, estimated investments required to contribute to the achievement of
global climate targets amount to hundreds of billions annually. The International Energy Agency
(IEA) estimates that between USD 315 billion and USD 640 billion annually will be needed globally
for rail to achieve climate mitigation targets [3].
The proportion of this investment that would be required by LICs and LMICs to transform their
railway networks and see the socio-economic benefits that would accompany that growth is not
large. To achieve the projected infrastructure growth of the two scenarios developed until 2050, total
investments required would range from USD740 billion (base case scenario) to USD 2,310 billion
(best case scenario). This would mean a requirement of annual investments of between USD
25 billion and USD80 billion. In contrast, annual explicit fossil fuel subsidies amount to over
USD500 billion globally [20].
These values derive from general assumptions of interurban railway infrastructure costs of USD 8.5
million/km, and USD 61.8 million/km for urban railway infrastructure, based on a study that analysed
approximately 1,500 global rail projects [21].

Figure 7. Total investment required to fulfil infrastructure potentials in billion USD

Current barriers for rail finance in LICs and LMICs

The necessary investments to fulfil the rail infrastructure potential in LICs and LMICs may be
relatively small in a global context, yet they are still challenging relative to the financial situation of
these countries, due to their financial capacity. A finance gap undoubtedly exists for rail projects in
LICs and LMICs, but it is important to understand the underlying factors behind this reality from a
holistic perspective.
These countries have limited tax revenues compared to higher-income economies, which limits self-
funding potential for new railway lines or upgrades to existing infrastructure. They rely on securing
external sources of funding or financing, however they generally already navigate high levels of
public and private debt which restricts further borrowing. Concessional grants for projects such as rail
infrastructure are generally limited to relatively small amounts of up to USD 5 million and are usually
made in expectation that larger amounts will subsequently be financed. Concessional loans from
International Finance Institutions (IFIs) are an attractive source of finance, as well as bilateral funding
through institutions like Export Credit Agencies (ECAs). Sources of private finance for rail projects
can be difficult to secure due to some of the inherent features of the projects; this is particularly the
case in LICs and LMICs. Additionally, economic benefits that result from projects, like uplifts in the
value of land located close to new rail lines, can be difficult to capture and direct to the projects.

16
The very nature of large rail projects can also add to difficulties in securing financing. The lifecycle
of rail infrastructure is very long, at 100 years or more. Although shorter, the lifecycle of rolling stock
is also relatively long at 30 – 35 years. Rail projects deliver socioeconomic benefits on these long
timescales, but they exceed the length of normal financing models. IFIs generally offer loan tenors of
around 30 years, while private loans generally have tenors up to 10 years. Particularly for passenger
rail projects, fares must generally be set at affordable levels, not sufficient to cover costs of operation
and maintenance.For this reason, rail projects generally have required primarily government
investment, as private sector entities will not make standalone investments in projects that only
partially recovers costs. Freight rail projects are an exception, with specific cases that can guarantee
commercial returns to project developers (e.g. mining industry).
Current standard approaches to assess the benefits of rail projects also create barriers for rail
investment. Standard depreciation rates used in cost-benefit analysis lead to limited or no financial
benefits for projects extending longer than 30 years. Cost-benefit analysis is particularly difficult for
greenfield projects, where there is limited existing evidence available to be used in the analysis.
Furthermore, economic benefits created by rail projects are not only rarely incorporated at full scale
in financial models, but also do not conform with expected return on investment to the funding
partner(s). Avoided carbon emissions can be estimated, but past prices set for avoided carbon are
generally low, well below estimates of the social cost of carbon. Other benefits of projects such as
the creation of formal jobs, densification of urban areas due to development patterns that can be
influenced by rail, or spurring broader economic opportunities and development are difficult to quantify
and monetise. Rail projects also reduce externalities that impose significant societal costs such as air
pollution, congestion, traffic accidents, noise emissions and overall health. These benefits although
widely recognized as public goods are not incorporated in financial models. The same goes for the
direct or indirect positive effects of rail projects on accessibility and equality. For all these reasons,
current financial models fail to capture the positive economic returns of rail projects, focusing solely
on a financial return on investment, which hinders further investments on rail and strongly contribute
to the “finance gap” for rail in LICs and LMICs.
Rail projects in LICs and LMICs also face greater risks in terms of project implementation compared
to HICs, which can also be reflected in their borrowing capacity and cost. Many LICs and LMICs lack
the institutional and technical capacity that are crucial to conduct appropriate feasibility studies and
environment and social impact assessments and to successfully implement projects. In many of these
countries, the rail sector may consist of only one government organisation.

Current financing mechanisms for rail

An alternative and competitive financing mechanism available to finance rail projects in LICs and
LMICs are through the involvement of Export Credit Agencies (ECAs). In that respect the mandate
of ECAs from OECD countries is to support private businesses to export to low-income and lower
middle-income countries, according to standardised rules governing the cost of the financings
administered by the OECD. This is an important mechanism with regards to financing rail projects
that incorporate rolling stock and/or signalling equipment that is generally manufactured in OECD
countries. This arrangement has mobilised more than 650 billion Euros in financial support for exports
between 2011 and 2021 [22]. Of the total support since 2005, approximately 20% has been for rail
exports to LICs and LMICs. However, a vast majority of that amount (62%) was used for a single
destination country – India. The reform package released by the OECD (Climate Change Sector
Understanding (CCSU) or commonly known as “the Arrangement” or “the Consensus”) which came
into effect mid July 2023 can be seen as a positive milestone to help increase the impact of trade and
finance flows on securing climate objectives. Specifically, the OECD participants agreed in principle
on the expansion of the scope of green or climate friendly projects (by the inclusion of rail which
before was ruled by a specific sector understanding). From the OECD’s standpoint, “The aim of the
agreement in principle is to make arrangement financing flexible enough to better face challenges
posed by the economic and financial needs of projects as well as the increasingly competitive
landscape and to create further incentives for supporting a wider range of climate friendly and green
transactions.” In a nutshell the main benefit of the CSSU are threefold (i) increasing the maximum
repayment terms up to 22 years for CCSU-eligible projects and 15 years for most other projects (ii)

17
 introducing further repayment flexibilities, and; adjusting the minimum premium rates for credit risk
for longer repayment terms and obligors with a higher credit risk rating.
This being acknowledged, building on this positive momentum (with the modernization of the
OECD consensus, important milestones have been reached to reduce its complexity and to regain
the attractiveness of the Arrangement), the Consensus should be adapted for a more flexible set of
rules. Indeed, besides the relevance of global value chains and the widely acknowledged increased
competition outside the OECD Arrangement, that also propose better financing conditions, there is
a continuous need to ensure the OECD Consensus remains attractive for the reestablishment of
a real global level playing field. Additionally, there is a need to align the rules for development and
export finance on debt products more coherently. .
Another source of financing for rail in LICs and LMICs are development agencies from high-income
countries. These may provide concessional loans targeted to promote sustainable development
and economic growth. China offers an alternative to OECD countries for the financing of rail
projects in some LICs and LMICs, including as part of its “Belt and Road Initiative” This has seen
Chinese financial institutions (mainly the China Exim Bank and the China Development Bank)
fund projects to develop railway infrastructure with loans that may be concessional. Implemented
projects to date include Standard Gauge Railway Lines in Ethiopia (USD2.5 billion loan), Nigeria
(USD500 million concessionary loan), Kenya (USD4.7 billion loans), and Laos (USD3.6 billion).
However, many Belt and Road projects, including rail, have been criticised for unsustainably
increasing the debt levels of LICs and LMICs [23]. Some projects have also not met original
forecasts for traffic and usage levels.
A particular form of private financing that has been promoted as suitable for rail projects are Public
Private Partnerships (PPPs). PPPs are generally designed such that a consortium of private
companies designs, finances and builds a rail system, before operating and maintaining it for a
concession period that may be 25 years. Some project risks are held by the consortium, such as
for those related to construction, financing and operation, the idea being that private companies
may be able to better reduce these risks through their design and structuring of the project, and
therefore reducing overall project costs. Governments generally provide upfront funding and
ongoing subsidies or funding to the private companies and may retain risks related to commercial
revenues. PPPs have been successfully used to fund rail projects in many high-income countries,
but less so in LICs and LMICs. The structuring of the projects, and their ongoing regulation and
oversight require complex commercial and regulatory frameworks and knowledge, that may
challenge the institutional capacity of LICs and LMICs [24].
Concessional financing from IFIs have been crucial for LICs and LMICs to date, as a development
mechanism despite their relatively low tax bases. [24]. IFIs have limited access to funds that can be
administered as grants, instead they are able to borrow at competitive rates due to their generally
investment grade credit ratings. These organisations have consistently provided important loans to
foster all sectors in developing countries, including transport.
In absolute values, IFIs have helped finance tens of thousands of projects for the transport sector
in LICs and LMICs across all continents. However, there has been a visible predominance of
finance for road projects over time, leaving rail infrastructure somewhat overlooked despite its clear
green credentials. Using data set from a sample of three multilateral development banks6 (Asian
Development Bank - ADB, African Development Bank - AfDB, and Interamerican Development
Bank - IADB), the gap between road and rail finance is visibly large. Road transport has received
cumulatively almost six times more investments than rail transport in the total periods
reported7. Moreover, LICs have been particularly overlooked in terms of finance for transport
projects, even more so in rail, receiving only USD 320 million in the periods concerned.

6
These three multilateral development banks were selected because their publicly available data offered the same granularity and
resolution.
7
ADB (1968-2023); AfDB (1967-2022); IDB (1961-2023) – values adjusted for inflation.

18
Figure 8. Analysis of historical investments per mode by three multilateral development banks (in USD millions adjusted for inflation)

IFIs are undergoing changes concerning the scale and the prioritisation of investments, that will see
more of the finance they deploy directed towards projects with positive climate benefits. Many IFIs are
progressively moving towards only financing projects that have outcomes that are Paris Agreement-
aligned, which will see funding allocations for transport projects flow away from road and airports
towards rail and ports [25]. This must be accompanied by an increase in internal technical capacity
and an increase in the number of projects designed in LICs – which so far have been lagging.

What about Climate Finance8?

What is climate finance?
Climate finance is financing provided by public or private entities for activities that, in whole or in part,
mitigate carbon emissions or support adaptation and resilience to climate change. Climate finance
is defined by its purpose, not its source or its instrument. Because railways are a green mode, most
financing of railway investments would be considered climate finance, even if the investment is
undertaken for development or other productive purposes rather than primarily for climate benefits.
Worldwide climate finance flows across all sectors were estimated to average $653 billion
over 2019 and 2020.9 About 90 percent of climate finance has been invested in mitigation measures
and only two-fifths flowed to non–Organization for Economic Cooperation and Development (OECD)
countries. About 25 percent (USD 169 billion) was invested in the transport sector, with railways and
public transport representing 2 – 3 percent of the total. The transport financing (data are not available
for railways separately) comes from a variety of sources including:
Public Sector: This includes financing provided by public funds, State Owned Enterprises (SOEs),
• 
governments and public development financial institutions at both national and international levels.
Private Sector: This includes financing from corporations, commercial banks, institutional
• 
investors, and households.
Multilateral Climate Funds: Several international mechanisms and funds facilitate climate finance.
• 
Two include the Green Climate Fund (GCF), and the Global Environment Facility (GEF), both
established under the United Nations Framework Convention on Climate Change.
Multilateral Development Banks: Organizations like the World Bank and regional development
• 
banks provide financing on concessional terms to support climate-related projects in developing
countries.
Bilateral Development Agencies: Some countries provide financing directly to other countries
• 
through bilateral agreements, budgetary aid or project funding allocated to specific projects that
align with their climate goals.

8
This section draws from a study conducted by Jyoti Bisbey, Martha Lawrence, and Matthias Plavec for the World Bank on
“Mobilizing Climate Finance for Railways”
9
Preliminary estimates from Climate Policy Initiative (CPI) stand at $608 billion–622 billion in 2019.

19
Climate funds
Several multilateral climate funds have been established to promote investment in climate change
mitigation and adaptation measures, but transport has been only a small beneficiary of climate funds,
receiving USD 141 million in 2020. The GCF and the GEF have emerged in recent years as the most
active funds in the transport sector. Both originated with the United Nations Framework Convention
on Climate Change (UNFCCC), have the World Bank acting as the trustee, and receive most of their
funding from developed country donors.
As of July 2023, GCF had a total of 15 active transport projects in its portfolio, with a combined value
of USD 952 million. GCF’s financing in transport is focused on climate change mitigation. Examples
of rail projects financed by GCF indicate a focus on urban systems, but none of the rail projects
implemented to date have been in LICs or LMICs.
It shows that, to date, climate funds are not scaled to address the substantial financing needs in the
railway sector, and therefore may be considered as a potential co-financier for such projects. This
can be attributed to the fact that the scale of financing available from climate funds is quite limited
compared to the size of many railway projects. In addition, the process for rail projects to determine
if they can qualify and the subsequent process to access the financing is uncertain and takes usually
considerable effort and time. In the limited availability of climate finance to the transport sector, urban
rail would appear to be the rail investment most likely to qualify for financing.

Green Bonds
To access green bond financing, the investment financed must be ‘green’ and the bond issuer must
be creditworthy. The green bonds issued in 2022 reached a size of USD 487 billion, with the use of
green bonds in the transport sector trending up to around 20% of that. Accessing commercial capital
markets, including Green Bonds, requires the rail project to be creditworthy, which is a challenge to
LICs and LMICs where the financial viability of projects is limited. For instance, most of the World
Bank green bonds for rail projects went to upper middle-income countries (UMICs) such as Brazil,
China, and Colombia, while only a small fraction went to LMICs such as India and the Philippines,
mostly due to UMICs having more creditworthy railways. A fruitful exception is Morocco’s national
railway operator ONCF which is issuing green bonds to finance or refinance eligible projects linked to
electrified and low-carbon rail infrastructure for passenger and freight transport.
Railways that provide loss making public services, such as urban passenger services, can access
commercial financing, provided they have support from governments to make them creditworthy.
Given the reality of borrowing limitations of LICs and LMICs, development finance institutions
can support the reforms needed to improve the creditworthiness of railways and provide credit
enhancement instruments to support such commercial financing.
Carbon Finance Markets
Many voluntary markets adhere to recognized standards and methodologies for measuring,
reporting, and verifying emissions reductions. The price of carbon credits in voluntary markets can
vary widely depending on supply and demand, project type, and the market’s specific characteristics.
It is often influenced by market dynamics and the perceived value of the projects being funded. The
voluntary carbon market had a total annual value in the order of USD 2 billion and transport related
credits accounted for less than 1% of the total credits issued between 2015 and 2021.
While direct decarbonization measures such as transitioning from fossil fuel-powered engines to
electrified or alternative fuels are easier to quantify, many railways are already run on electricity
making the carbon market from fuel shift smaller than for other modes of transport. But rail projects
that produce GHG reduction through modal shift, diverting traffic from carbon-intensive transport
modes like trucks, could tap into a bigger carbon finance market.
To promote rail carbon finance, whether it is a compliance or voluntary market, carbon market
regulations specifically for land transport are necessary. These would limit emissions from land
transport and qualify GHG reductions from modal shift, including active transport (cycling and
walking), public transport and ridesharing instead of single occupied private cars, as well as
substituting rail for air travel and for freight.

20
What Role for Climate-Specific Instruments?
Railways, as a green mode of transport, have potential to access climate specific financing, if
constraints are addressed.
• C
 limate funds could help leverage commercial financing. Because their resources are small
compared to the size of typical railway investments, climate funds, by themselves, are not scaled to
address the substantial financing needs in the railway sector. Rather they could be used together
with commercial finance in blended finance package to reduce cost or reduce risk, such as the
case for a light rail projectin Costa Rica.
• Sustainable commercial finance has significant potential. The pool of investors is large
and growing. Green bonds and loans could finance a wide range of adaptation as well as mitigation
investments, while sustainably-linked finance could finance an even broader range of investment.
To access this financing, governments and railways need to work together to make their railways
creditworthy. The World Bank and other Development Finance Institutions can support the reforms
needed to improve the creditworthiness of railways and support the transition to commercial
financing through credit enhancement instruments.
• Carbon finance markets have potential, with changes in regulations. Regulations and
standards would be needed to quantify the emissions of land transport operators and quantify
emissions reductions, including from modal shift to rail. The monitoring, reporting, verification
(MRV) standards would need to be agreed with international agencies. Facilitation would be
needed as the process is expensive; and projects owners face both lack of resources and capacity
to undertake the process.
Stronger engagement from governments and MDBs—the traditional sources of financing for
railways—is also needed. Climate funds often rely on MDBs and governments to originate and lead
on financing railways in lower- and middle-income countries. Carbon finance market regulations
need to be developed to cover land transportation and include railways. This would support financial
regulators and railways with their green finance frameworks and methodologies; and provide financial
assistance with market MRV services. Finally, support for governments and railways to address the
creditworthiness of SOE railways could unlock sustainable commercial financing for railways.

The Partnership for Global Infrastructure and Investment [26]

The Partnership for Global Infrastructure and Investment (PGII) is a collaboration between the G7,
IFIs and the private sector to advance public and private investments in sustainable, inclusive,
resilient and quality infrastructure. Through this partnership, the G7 aims to mobilize up to USD 600
billion by 2027 in order to narrow the infrastructure investment gap in partner countries.
In Sub-Saharan Africa, the United States is supporting the development of the Lobito Corridor, with
an initial investment in a rail expansion that may become the primary open access transportation
infrastructure connecting the Democratic Republic of the Congo (DRC) and Zambia with global
markets through Angola. Initial investments under consideration include USD 250 million in
potential financing from the U.S. International Development Finance Corporation for the rail line
and an initial USD 900 million in financing from the U.S. Export Import Bank for two solar projects
that will generate over 500 megawatts of renewable power in Angola.
Recently, the Japan International Cooperation Agency (JICA) financed or co-financed a number of
railway projects in Asia. Examples include the North-South Commuter Railway in Metro Manila, the
Philippines (USD 2.8 billion) and the mass rapid transit (MRT) Line 5 in Dhaka (USD 974 million) in
collaboration with ADB; a high-speed railway between Mumbai and Ahmedabad (USD 2.2 billion),
and a metro railway in Patna (USD 720 million).

21
Looking forward – from Clean Development
Mechanism (CDM) to Article 6
Initiated under the Kyoto Protocol, the Clean Development Mechanism (CDM) was the
first carbon finance scheme. Managed by the UNFCCC, projects that could demonstrate
savings in carbonemissions would be allowed to issue credits for their Carbon Emissions
Reduction (CER). The CDM scheme was broadly utilised by various sectors but not much
by transport, even less so by rail. Of the more than 12,000 successfully validated projects,
only 32 were dedicated to transport, and only 9 of those were in the rail sector. Even at the
highest historical rates, CERs issued for rail transport were nowhere near sufficient to cover
capital costs of projects – and were mostly used to support operations of existing systems.

During COP26 in Glasgow, Article 6 of the Paris Agreement was approved, and established
a new platform for the international carbon market that can substantially improve the
finance potential for LICs and LMICs. Under Article 6, emission reductions that have been
authorised for transfer by the selling country’s government may be sold to another country,
but only one country may count the emission reduction toward its Nationally Determined
Contributions (NDCs), and the trading in these carbon credits could help reduce the cost of
implementing countries’ NDCs by as much as $250 billion in 2030 [27].

There have been propositions to expand the understanding of mitigation to include carbon
avoidance. Should that be the case, then LICs and LMICs would potentially find in Article
6 a mechanism to finance rail projects under the premise of decoupling economic growth
from carbon emissions. This would adopt calculations of the CO2 that they would prevent
from the equivalent investment in road modes to generate similar or greater traffic volumes.

Sharm el-Sheikh Implementation Plan and the Loss and Damage Fund
COP27 in Sharm El Sheikh saw the breakthrough to provide “loss and damage” funding for
vulnerable countries hit hard by climate disasters. The cover decision, known as the Sharm
el-Sheikh Implementation Plan, highlights that a global transformation to a low-carbon
economy is expected to require investments of at least USD 4-6 trillion a year. Delivering
such funding will require a swift and comprehensive transformation of the financial system
and its structures and processes, engaging governments, central banks, commercial
banks, institutional investors and other financial actors. Once up and running, the fund will
provide particularly vulnerable countries with funding to support recovery from the impacts
of climate-related disasters such as floods and droughts. Although negotiations are still
ongoing developing nations call for wealthy countries that have contributed the most to
climate change to provide most of the funding, and in grant form. Pakistan, which saw
heavy infrastructure loss due to the floods in late 2022, had damages to 3,127 kilometres of
railway track [28] (around 40 percent of in-service railway). In support of the reconstruction
plan for the country, UN Secretary General calls for “the Loss and Damage Fund must be
operationalized, so that it can provide grant-based finance without increasing debt”.

22
4
BRIDGING
THE GAPS FOR
RAIL PROJECTS
IN LOW- AND
LOWER-MIDDLE
INCOME
COUNTRIES

23
Investing in rail infrastructure to decarbonise future transport volumes in LICs and LMICs
will create global public goods, specifically benefits at the global scale in avoiding carbon
emissions that can help limit climate change and associated adverse impacts, as well as
bringing broad socioeconomic benefits to these countries.

LICs and LMICs hold a relatively high power in carbon avoidance due to their low historical and
current emissions, but limited power in realising the investment in rail infrastructure that can
avoid potential future emissions from growth of unsustainable transport provision. The analysis
undertaken as part of this study shows that between 1.0 – 1.8 Gt of future carbon emissions
from LICs and LMICs can be avoided by 2050 if there is a large increase in their rail provision. It
is therefore of global significance for climate action that means to fund and finance investment
in rail infrastructure in LICs and LMICs is secured. This will require action and coordination by
governments in both rich countries and LICs and LMICs, IFIs and the international finance sector
and the rail industry. To that end, this study makes the following recommendations:

1. High Income countries should provide grants to fund rail projects in LICs and LMICs
a. In order to facilitate a substantial increase in rail infrastructure in LICs and LMICs richer
countries should provide grants that either fully or partially fund projects. Making such grants
available, when allied with concessional financing, should greatly improve the financial
viability of projects.
b. Grants should come from the annual USD 100 billion climate finance that developed countries
committed to providing developing countries at COP15 in Copenhagen.
c. Grants could also come from the “loss and damage” fund agreed at COP27 in Sharm el-
Sheik, if rail infrastructure is damaged due to climate change impacts.

2. Governments should allow rail projects in LICs and LMICs to be funded under Article 6 of
the Paris Agreement and support the development of carbon finance market regulations
for rail
a. The emissions that can be avoided by rail projects in LICs and LMICs should be considered
by governments as climate mitigation under Article 6 of the Paris Agreement. This would allow
the carbon savings of these projects to be sold to become savings under the NDCs of richer
countries, providing an important new source of climate financing and lowering the overall
cost of emission reduction.
b. Governments should also work to define carbon finance market regulations specifically for
land transport. These would qualify emission reductions from modal shift to rail (and active
transport – walking and cycling) from more polluting modes like road and air travel. This
would support projects by allowing a financial value to be established on compliance or
voluntary markets, increasing their financial viability.

3. IFIs should adapt their methods of cost-benefit analysis of rail projects and greatly
increase the funding they direct to rail
a. As current methods of cost-benefit analysis used by IFIs do not recognise the up to 100 year
benefits from rail projects these institutions should develop an approach that allows lower
discount rates to be used for rail projects, therefore increasing the number of projects they
fund.
b. IFIs should also seek to increase the value they ascribe to the broader socioeconomic
benefits that rail projects in LICs and LMICs can bring in their appraisals of projects.
c. As IFIs move towards larger lending pools to increase climate action they should allocate
more of their funding of transport projects to rail projects in LICs and LMICs, projects that by
their nature are Paris Agreement-aligned.
d. Additionally, IFIs should continue working with governments in LICs and LMICs through their
advisory divisions, to help them structure bankable and sustainable railway/mobility projects.

24
4. LICs and LMICs should lead implementation of policies to spur private investment in rail,
and modal shift
a. Governments in LICs and LMICs should make their rail projects more attractive to private
investors by providing more security over moveable rolling stock assets to creditors.
b. They should also work together to adopt aligned rail technical standards across countries,
which will increase investor confidence and allow multi-country rail corridors to be developed.
c. Governments should accompany rail projects with policies that encourage modal shift in order
to ensure full utilisation of infrastructure and success of outcomes. These can be through both
push and pull measures.
d. To further encourage modal shift LICs and LMICs should accompany rail projects with
investment to facilitate seamless last and first mile connections for both passengers and freight.

5. The international financial sector should work to make financing rail projects more
attractive to the public and private sectors and to build capacity in LICs and LMICs
a. Building on the significant progress of the CCSU (the OECD consensus) it should be adapted
for a more flexible set of rules and to ensure it remains attractive for the reestablishment of a
real global level playing field. Additionally, there is a need to align the rules for development
and export finance on debt products more coherently.
b. he international financial sector should collaborate with LICs and LMICs to make private
financing of rail projects more attractive by building capacity such that some projects can be
delivered under the PPP model.
c. The international finance sector should also support LICs and LMICs to build the institutional
and technical capacity to deliver rail projects. This would come through support to strengthen
fiscal and regulatory frameworks.

6. LICs and LMICs collaborate with the rail industry to structure rail projects to maximise
broader economic benefits
a. Private companies can bring significant operational and technical expertise to rail projects
in LICs and LMICs where there may be a lack of local capacity; they can also help develop
the industrial capacity of countries through facilitating participation in supply chains during
construction and operations phases. LICs and LMICs should work with the rail industry to
structure projects in this way, which will broaden economic benefits, increase countries’
economic complexity and create high value formal jobs.

7. The railway industry should continue to leverage digitalisation and advances in rail
technologies to improve the attractiveness of rail
a. The railway industry has made strong advances in digitalization, delivering benefits that can
lower the upfront investment cost of projects as well as operation and maintenance costs.
The industry should continue to invest in such technology, as well as in alternative green
traction modes that can also reduce infrastructure costs.

25
26 27
5
METHODOLOGY

28
Estimates for railway infrastructure potential
Target railway infrastructure density were based on benchmarks with best-in-class cities or
countries within Low Income Countries (LICs) and Lower-Middle Income Countries (LMICs) sample.
Country in scope – Low Income Countries (LICs): Afghanistan, Burkina Faso, Burundi, Central
African Republic, Chad, Democratic Republic of Congo, Eritrea, Ethiopia, the Gambia, Guinea-
Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mozambique, Myanmar, Niger, Rwanda, Sierra
Leone, Somalia, South Sudan, Sudan, Tajikistan, Togo, Uganda.
Lower Middle Income Countries (LMICs): Angola, Bangladesh, Benin, Bhutan, Bolivia, Cambodia,
Cameroon, Cape Verde, Comoros, Republic of Congo, Djibouti, Timor Leste, Egypt, Eswatini, Ghana,
Guinea,Haiti, Honduras, India, Iraq, Cote D’Ivoire, Jordan, Kenya, Kiribati, Kyrgyzstan, Lao PDR,
Mauritania, Moldova, Morocco, Nepal, Nicaragua, Nigeria, Pakistan, Papua New Guinea, Philippines,
Samoa, Sao Tome & Principe, Senegal, Solomon Island, Sri Lanka, Tanzania, Tunisia, Uzbekistan,
Vanuatu, Vietnam, Yemen, Zambia, Zimbabwe.
a. Inter-urban railway infrastructure potential
The inter-urban additional railway infrastructure potential was calculated thanks to a score based
on interurban railway density compared to a rail development index. This index is based on
4 criteria: economics (i.e., includes exportation, importation, GDP per km2, and mining export),
geographics (i.e., includes land area, altitude index, population density), governance and institution
efficiency (i.e., includes risk of conflict, government effectivness), and infrastructure level (i.e.,
road density).
Targets have been set to 75th percentile for the base case scenario and to 95th percentile for the
best case scenario.
b. Urban railway infrastructure potential
The urban additional railway infrastructure potential was calculated thanks to a score based on
urban railway density compared to population density. The targets have been set for two
clusters: high populated urban areas, and low populated urban areas (with a threshold of 5 million
people).
Similarly to the analysis on inter urban railway potential, targets have been set to 75th percentile for
the base case scenario and to 95th percentile for the best case scenario.

Evaluation of necessary investments

The assumptions taken to estimate the cost of railway building were USD 8.5m per rail km for
interurban railway, and USD 61.8m per rail km for urban railway.
Costs of new rail infrastructure have been based on a c. 1500 projects UIC analysis in LICs and
LMICs. Generally, costs indicated in the database include all infrastructure-related expenses,
including track-building, signaling, stations, bridges & tunnels etc. Some projects seem to factor in
rolling stock, although these projects are probably the exception.

Evolution of modal share of rail

As an input, the increase of railway network has been used (based on the previous analysis made to
estimate railway infrastructure potential).
The assumptions taken is to double network utilization rate (i.e., number of seats offered for a
given network) by 2050, occupancy rate is to improve by 50% (i.e., number of seats filled) by 2050,
traffic forecast is based on demography (assumptions taken country by country) with an average
journey considered constant.

Estimates for CO2 savings

Assumptions were made on CO2 emission per mode (using global energetic mix). Savings of both
scenarios are calculated as the difference between a “business as usual” scenario with a constant
rail modal share.

29
References
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https://about.bnef.com/blog/oil-demand-from-road-transport-covid-19-and-beyond/.
[3] International Energy Agency, “The Future of Rail: opportunities for energy and the environment,” IEA, Paris,
2019.
[4] International Energy Agency, “Well-to-wheel (wake/wing) GHG intensity of motorised passenger transport
modes,” 22 September 2022. [Online]. Available: https://www.iea.org/data-and-statistics/charts/well-to-wheel-wake-
wing-ghg-intensity-of-motorised-passenger-transport-modes-2.
[5] EY, “The role of urban rail in a sustainable Africa,” Alstom, Paris, 2022.
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